Medicaid Financial Management: Steps Taken to Improve Federal
Oversight but Other Actions Needed to Sustain Efforts (22-JUN-06,
GAO-06-705).
Medicaid--the federal-state health care financing
program--covered over 56 million people at a cost of $295 billion
in fiscal year 2004, the latest fiscal year for which complete
data are available. The Centers for Medicare & Medicaid Services
(CMS) is the federal agency responsible for overseeing states'
Medicaid programs and ensuring the propriety of expenditures
reported by states for federal reimbursement. In 2002, GAO
reported on weaknesses in CMS's oversight of Medicaid financial
management and made recommendations to CMS to strengthen its
oversight process. In fiscal year 2003, CMS started receiving
funds from the Health Care Fraud and Abuse Control (HCFAC)
program to help improve Medicaid financial management. GAO was
asked to evaluate CMS's financial management activities,
including following up on prior recommendations. In this report,
GAO examined (1) the extent to which CMS has improved its ability
to identify and address emerging issues that put federal Medicaid
dollars at risk and (2) how CMS used funds for Medicaid from the
HCFAC account.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-06-705
ACCNO: A55902
TITLE: Medicaid Financial Management: Steps Taken to Improve
Federal Oversight but Other Actions Needed to Sustain Efforts
DATE: 06/22/2006
SUBJECT: Erroneous payments
Federal/state relations
Financial management
Fund audits
Internal controls
Medicaid
Risk management
Reimbursements from government
DOJ/HHS Health Care Fraud and Abuse
Control Program
Medicaid Statistical Information System
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GAO-06-705
* Results in Brief
* Background
* Steps Taken to Improve Oversight Activities but Some Previou
* Additional Staff and Creation of New Division Have Improved
* Focused Financial Reviews and OIG Audits Continued to Identi
* Goal for Reducing Questionable Federal Reimbursement Helps P
* Other Efforts Help CMS's Oversight of Medicaid Finances
* Some Previously Identified Weaknesses in Oversight Activitie
* Use of HCFAC Funds to Enhance Medicaid Oversight Initiatives
* Conclusions
* Recommendations for Executive Action
* Agency Comments and Our Evaluation
* Appendix I: Scope and Methodology
* Appendix II: Status of Prior Recommendations
* Appendix III: Comments from the Centers for Medicare & Medic
* Appendix IV: GAO Contact and Staff Acknowledgments
* GAO Contact
* Acknowledgments
* Related GAO Products
* Order by Mail or Phone
Report to the Chairman, Committee on Finance, U.S. Senate
United States Government Accountability Office
GAO
June 2006
MEDICAID FINANCIAL MANAGEMENT
Steps Taken to Improve Federal Oversight but Other Actions Needed to
Sustain Efforts
Management Medicaid Financial Management Medicaid Financial Management
GAO-06-705
Contents
Letter 1
Results in Brief 3
Background 5
Steps Taken to Improve Oversight Activities but Some Previously Identified
Weaknesses Remain 8
Use of HCFAC Funds to Enhance Medicaid Oversight Initiatives 22
Conclusions 25
Recommendations for Executive Action 26
Agency Comments and Our Evaluation 26
Appendix I Scope and Methodology 28
Appendix II Status of Prior Recommendations 30
Appendix III Comments from the Centers for Medicare & Medicaid Services 34
Appendix IV GAO Contact and Staff Acknowledgments 39
Related GAO Products 40
Tables
Table 1: Medicaid Spending in Fiscal Years 2003 and 2004 6
Table 2: Issues Consistently Planned for Focused Financial Reviews in
Fiscal Years 2003 through 2006 12
Table 3: Issues To Be Audited by the OIG in Fiscal Years 2003 through 2005
14
Table 4: Discretionary HCFAC Funds for CMS and CMSO's Allocation 23
Table 5: Medicaid Financial Management Projects and Their HCFAC
Allocations for Fiscal Years 2003 through 2005 24
Table 6: Recommendations Made in GAO-02-300 - Medicaid Financial
Management: Better Oversight of State Claims for Federal Reimbursement
Needed (February 2002) 30
Figure
Figure 1: CMS Organizational Chart 7
Abbreviations
CMS Centers for Medicare & Medicaid Services CMSO Center for Medicaid and
State Operations DFM Division of Financial Management DRSF Division of
Reimbursement and State Financing FMAR Financial Management Activities
Report GPRA Government Performance and Results Act HCFAC Health Care Fraud
and Abuse Control HHS Department of Health and Human Services MSIS
Medicaid Statistical Information System OIG Office of Inspector General
PERM Payment Error Rate Measurement SCHIP State Children's Health
Insurance Program
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United States Government Accountability Office
Washington, DC 20548
June 22, 2006
The Honorable Charles E. Grassley Chairman Committee on Finance United
States Senate
Dear Mr. Chairman:
Medicaid-the federal-state program financing health care for certain
low-income children, families, and individuals who are aged or
disabled-covered over 56 million people at an estimated cost of $295
billion in fiscal year 2004. Within broad federal guidelines, states
administer their Medicaid programs by paying qualified health providers
for a range of covered services provided to eligible beneficiaries and
then seeking reimbursement for the federal share of those payments. The
Department of Health and Human Services' (HHS) Centers for Medicare &
Medicaid Services (CMS) is the federal agency responsible for overseeing
states' Medicaid programs and ensuring the propriety of expenditures
reported by states for federal reimbursement. States can design and
administer their Medicaid programs in a manner that helps them ensure that
they receive the maximum allowable federal share of expenditures they
incur for covered services provided to eligible beneficiaries under a
CMS-approved state Medicaid plan, as long as they do so within the
framework of federal law, regulation, and CMS policy.
For more than a decade, we have reported concerns relating to actions by
some states that result in excessive federal reimbursement. We have also
reported concerns about CMS's oversight of states' claims for
reimbursement and CMS's efforts to detect and reduce improper payments in
the Medicaid program.1 In 2002, we made 13 recommendations to CMS to
strengthen oversight of states and certain activities to address fraud and
abuse.2 In 2003, we added Medicaid to our list of high-risk federal
programs3 because the challenges inherent in overseeing a program of
Medicaid's size, growth, and diversity put the program at high risk for
waste, abuse, and exploitation.
1A list of related GAO products is provided at the end of this report.
2GAO, Medicaid Financial Management: Better Oversight of State Claims for
Federal Reimbursement Needed, GAO-02-300 (Washington, D.C.: Feb. 28,
2002).
Congress and CMS have taken actions to (1) curtail certain abusive
financing schemes that some states have used to generate excessive federal
reimbursement and (2) strengthen Medicaid fraud and abuse control
activities. Further, CMS received almost $46 million of Health Care Fraud
and Abuse Control (HCFAC)4 funds during fiscal years 2003 through 2005 for
programs related to its oversight of Medicaid, including hiring new staff
to identify and review state practices related to funding their Medicaid
programs.
Because of your continued concern about the stewardship of federal
Medicaid funds, you raised questions about CMS's oversight. The focus of
this report is on CMS's financial management activities, including its
efforts to oversee state claims for federal reimbursement and to identify
payment errors. We also focus on how CMS has responded to our 2002
recommendations to strengthen financial oversight and certain activities
to address fraud and abuse. Specifically, in this report, we address the
following questions:
1. To what extent has CMS improved its oversight, including its ability to
identify and address emerging issues that put federal Medicaid dollars at
risk?
2. How has CMS used funds provided through the HCFAC program that were
specifically for Medicaid?
To identify the extent to which CMS has improved its oversight, including
its ability to identify and address emerging issues that put federal
Medicaid dollars at risk, we performed work at CMS headquarters and two
regional offices. We reviewed and assessed aspects of CMS's financial
oversight processes, which include identifying high-risk areas in order to
develop an annual regional office financial management workplan and
conducting focused financial reviews of high-risk areas. We reviewed our
prior reports, and reports by HHS's Office of Inspector General (OIG) and
others. We also interviewed officials and staff at the CMS central office
in Baltimore, Maryland, and two regional offices-New York and Chicago.
3 GAO, Major Management Challenges and Program Risks: Department of Health
and Human Services, GAO-03-101 (Washington, D.C.: January 2003).
4 Congress enacted the HCFAC program as part of the Health Insurance
Portability and Accountability Act of 1996 to consolidate and strengthen
ongoing efforts to combat fraud and abuse in health care programs,
including the Medicare and Medicaid programs. Pub. L. No. 104-191, tit.
II, 110 Stat. 1936, 1991 (Aug. 21, 1996). The legislation required the
establishment of the national HCFAC program and it established the HCFAC
account within the Medicare Federal Hospital Insurance Trust Fund, which
is funded by appropriations out of the Trust Fund.
To determine how CMS used funds from the HCFAC account for fiscal years
2003 through 2005, we obtained from CMS a list of Medicaid projects that
were funded from the HCFAC account during those 3 years. We obtained and
examined documentation from CMS such as invoices; grant awards;
interagency agreements; and accounting, budget, and payroll records that
support the information provided by CMS on how it used HCFAC funds for
that time frame.
See appendix I for more details about our scope and methodology. We
requested written comments on a draft of this report from the
Administrator of CMS or his designee. His written comments are reprinted
in appendix III. We conducted our review from February 2005 to May 2006 in
accordance with generally accepted government auditing standards.
Results in Brief
CMS has undertaken several steps to improve its Medicaid financial
management activities, including its efforts to oversee state claims for
federal reimbursement and to identify payment errors. CMS hired about 90
funding specialists who are examining high-risk state funding practices
and working with states to eliminate those practices that inappropriately
increase federal costs. These new staff have enabled CMS to perform more
in-depth reviews of high-risk issues. CMS also created a new unit, the
Division of Reimbursement and State Financing (DRSF), that centralized
responsibility for reviewing state plan amendments related to
reimbursement. The activities of DRSF have improved CMS's ability to carry
out more targeted oversight activities and have addressed some of our
previously reported concerns related to deploying its resources and its
organizational structure. CMS continued to analyze risks and use focused
financial reviews and OIG audits to identify inappropriate state claims
for federal reimbursement and recommend changes to states' internal
control practices. Conducting focused reviews of issues that CMS
identifies through its risk analysis has helped CMS identify billions of
dollars of questionable federal reimbursement. CMS has also set goals
aimed at reducing questionable federal reimbursement and holding financial
managers accountable and has enhanced its internal processes for tracking
results of its financial management activities. These and other recent
efforts such as CMS's approach to measuring payment errors to comply with
the Improper Payments Information Act of 2002 also address previously
identified weaknesses and recommendations from our 2002 report. However,
it is too soon to assess the impact they will have on improving overall
financial management and addressing emerging issues that put federal
Medicaid dollars at risk because some have just recently been initiated
and results are not known yet. Further, there are other previously
identified weaknesses that the agency has not yet addressed. Specifically,
CMS has not instituted mechanisms to measure how the risk of inappropriate
federal reimbursement has changed as a result of corrective actions taken.
In addition, CMS has not incorporated the use of the Medicaid Statistical
Information System (MSIS) database into its oversight of states' claims or
other systems projects intended to improve its analysis capabilities.
Further, CMS has not developed profiles to document information on state
fraud and abuse controls to use in its oversight of state claims. Finally,
CMS has not developed a strategic plan specific to its Medicaid financial
management activities. Because these issues are important to further
improving and sustaining CMS's oversight activities, we reiterate our
prior recommendations in these areas.
During fiscal years 2003 through 2005, CMS received almost $46 million
from the HCFAC account that it has used to help fund programs related to
its oversight of the Medicaid program, including about $12 million for the
funding specialists for fiscal years 2004 and 2005. The funding
specialists are currently funded on an annual basis with appropriations
from the HCFAC account. Because CMS competes with other agencies annually
for HCFAC funds, there is the chance that adequate funding might not be
provided through the HCFAC process in any given year for the funding
specialists, and CMS would therefore have to identify another means to
support the funding specialist positions. Creating permanent funding
specialist positions is important, given how CMS has been using them in
performing reviews of high-risk issues. CMS used the other $34 million of
HCFAC funds for other projects such as developing and enhancing an
integrated financial management tool, researching options for automating
the Medicaid state plan process, and interagency agreements with the OIG
to conduct audits of high-risk areas.
In addition to reiterating several recommendations to CMS from our 2002
report, we are making two additional recommendations to CMS to further
improve and sustain its oversight of state claims. Specifically, we
recommend that the Administrator of CMS (1) create permanent funding
specialist positions and (2) determine what systems projects are needed to
further enhance data analysis capabilities.
In written comments on a draft of this report, CMS agreed with our
findings and recommendations and stated that it will continue examining
issues raised in this report, including prior recommendations from our
2002 report that are still outstanding. CMS also stated that it will work
to implement the two recommendations made in this report. Additional
details on CMS's comments and our assessment of them appear in the Agency
Comments and Our Evaluation section near the end of this report.
Background
Medicaid is the third largest social program in the federal budget and one
of the largest components of state budgets. States and CMS share
responsibility for instituting financial practices for the Medicaid
program that are in compliance with applicable rules, laws, and
regulations. In general, the federal government matches state Medicaid
spending for medical assistance according to a formula based on each
state's per capita income. The federal contribution ranged from 50 to 77
cents of every state dollar spent on medical assistance in fiscal year
2004. For most state Medicaid administrative costs, the federal match rate
is 50 percent. For skilled professional medical personnel, 75 percent
federal matching is available. States are responsible for providing the
state share of Medicaid funding and submitting plans, budgets, and
expenditure reports to CMS that accurately report on the administration of
their Medicaid programs and how they expend Medicaid funds. CMS is
responsible for reviewing the states' plans, budgets, expenditures, and
operations to ensure compliance with all applicable laws and regulations.
Each state develops its own administrative structure and establishes its
own eligibility standards, scope of covered services, and payment rates in
accordance with Medicaid statute and within broad federal guidelines.
States are required to describe the nature and scope of their programs in
a comprehensive plan submitted to CMS, with federal funding depending on
CMS's approval of the plan. State Medicaid plans specify the services to
be provided and how the state will establish the amount it will pay for
those covered services. Amendments to states' plans are also subject to
approval by CMS. Table 1 shows the amount of state and federal
expenditures for Medicaid for fiscal years 2003 and 2004, the most recent
years for which data are available.
Table 1: Medicaid Spending in Fiscal Years 2003 and 2004
Dollars in billions
FY 2003 Percent FY 2004 Percent
State $115 41.7 $121 41.0
Federal $161 58.3 $174 59.0
Total $276 100 $295 100
Source: GAO analysis of CMS data.
CMS's Center for Medicaid and State Operations (CMSO) shares Medicaid
program administration and financial management responsibilities with the
10 CMS regional offices. Two divisions in CMSO's Finance, Systems, and
Budget Group-the Division of Financial Management (DFM) and DRSF-have
primary responsibility for Medicaid financial management. Figure 1
outlines CMS's organizational structure related to Medicaid.
Figure 1: CMS Organizational Chart
DFM's mission includes effectively administering the Medicaid program
budget and grants, financial management policy, and administrative cost
policy processes. Among other things, DFM staff in the central office are
responsible for (1) determining and issuing state grant awards based on
regional decision reports resulting from reviews of budget and expenditure
reports, (2) reconciling state expenditure and budget reports, (3)
reviewing and approving draft focused financial review reports, and (4)
preparing annual financial management workplans based on input from
regional offices.
DRSF's responsibilities include, but are not limited to (1) reviewing
state plan amendments that involve reimbursement, (2) providing training
to and coordinating the work of the funding specialists, (3) providing
technical assistance to states on institutional and noninstitutional
reimbursement, and (4) identifying and addressing state financing
practices that could inappropriately increase federal Medicaid costs.
CMS has approximately 65 regional financial analysts who are responsible
for performing activities such as (1) reviewing state quarterly budget
estimates and expenditure reports, (2) preparing decision reports that
document approvals for federal reimbursement or deferrals or disallowances
of claims for federal reimbursement, (3) assisting in assessing issues
that put federal Medicaid dollars at risk and determining which issues to
review in a fiscal year, (4) performing focused financial reviews, (5)
providing technical assistance to the states on financial matters, and (6)
serving as liaison to the states and audit entities.
CMS has about 90 funding specialists who are responsible for, among other
things, (1) gaining an understanding of their assigned state's
organizational structure, program structure, and budget process related to
the state's Medicaid program; (2) assisting in reviews of state plan
amendments; (3) conducting reviews of state financing practices; and (4)
providing technical assistance to the states.
States submit quarterly budget and expenditure reports to CMS. The
financial analysts in the 10 regional offices have traditionally reviewed
these reports and prepared a Regional Office Decision memorandum which
they submit to DFM in the central office. In some regions, the new funding
specialists now have responsibility for reviews of state budget reports.
Also, in some cases, the funding specialists assist financial analysts
with reviews of state expenditure reports.
Steps Taken to Improve Oversight Activities but Some Previously Identified
Weaknesses Remain
CMS has undertaken several steps to improve its Medicaid financial
management activities including its efforts to oversee state claims for
federal reimbursement and to identify payment errors. CMS hired about 90
funding specialists who are examining high-risk state funding practices
and working with states to eliminate those practices that inappropriately
increase federal costs. CMS also created a new unit, DRSF, which reviews
state plan amendments for reimbursement to identify and work with states
to eliminate payment methodologies that could result in higher federal
costs. CMS has continued to use focused financial reviews and OIG audits
to identify inappropriate state claims for federal reimbursement and
recommend changes to states' internal control practices. In addition, CMS
recently established a new performance goal for its Medicaid financial
management staff to reduce cumulative questionable federal reimbursement
by 10 percent in fiscal year 2006. These and other recent efforts
represent improvement in CMS's oversight activities and address weaknesses
and recommendations we identified in our 2002 report. However, it is too
soon to assess the impact they will have on improving overall financial
management and addressing emerging issues that put federal Medicaid
dollars at risk because some have just recently been initiated, and
results are not known yet. Further, there are other previously identified
weaknesses that the agency has not addressed. CMS has not instituted
mechanisms to measure how the risk of inappropriate federal reimbursement
has changed as a result of corrective actions taken. CMS also has not
incorporated the use of the MSIS in its oversight of state claims or other
systems projects intended to help improve its analysis capabilities.
Further, CMS has not developed profiles to document information on state
fraud and abuse controls to use in its oversight of state claims. Finally,
CMS has not developed a strategic plan to guide its financial management
activities. Because these issues are important to further improving and
sustaining CMS's oversight activities, we reiterate our prior
recommendations in these areas.
Additional Staff and Creation of New Division Have Improved Oversight Activities
In late 2004, CMS began hiring for 100 new funding specialist positions.5
These new staff have enabled CMS to perform more in-depth reviews of
high-risk issues. The funding specialists' positions were established to
help CMS gain a better understanding of how states budget for and finance
their portion of Medicaid expenditures and help CMS proactively identify
state payment and funding practices that could result in inappropriate
claims for federal reimbursement or increased federal costs. These new
funding specialists augment the activities of approximately 65 financial
analysts in 10 regional offices who had previously performed many of the
state financial oversight activities, including assisting the financial
analysts with reviews of state budget and expenditure reports. In
addition, the funding specialists performed activities that have enabled
CMS to collect and summarize more information on states' Medicaid programs
to help CMS target its oversight efforts to high-risk issues such as
certain payment arrangements that have been problematic in the past.
5As of April 25, 2006, 10 funding specialists were assigned to the central
office and 80 were assigned to the regional offices and deployed to the
states. There were 10 vacant positions in the regional offices.
A major activity of the funding specialists during their first year was
the completion of state funding profiles. These profiles document the
states' Medicaid programs' organizational structure, programmatic
structure, and budget process. For many years, states only needed to
provide general information on their payment methodologies, so these newly
created profiles provide more detail to help CMS in its review and
oversight of states' financial issues. For example, the profiles
o describe the sources of each state's nonfederal share of
Medicaid funds and state payment methodologies; and
o include a "watch list" section where the funding specialists
can highlight significant funding-related concerns that may need
to be addressed in the future. For example, one state profile
identifies a concern about the state's lack of oversight of the
certified public expenditures certification process for hospitals.
This type of information can be helpful in ensuring proper review
of future state plan amendments, among other things.
CMS officials told us the state funding profiles have been made
available to all CMS staff through CMS's intranet, and said the
profiles will be updated annually to account for changes in state
programs, thus allowing CMS to have current information.
In addition to completing state funding profiles and reviewing
state budgets and expenditures, the funding specialists carry out
other oversight activities, including the following:
o meeting with state Medicaid officials and monitoring state
legislative activity, including hearings, budget sessions, and
committee meetings related to states' Medicaid programs and
proposed bills to proactively identify issues that need CMS
attention;
o reviewing state payment arrangements that CMS previously deemed
problematic and that the states agreed to end to determine if the
arrangements have in fact ended;
o assisting in the resolution of OIG audit findings;
o providing technical assistance to the states concerning funding
and financial issues; and
o attending training and workshops to learn about and stay
abreast of CMS policy and operations.
Directing the activities of the new funding specialists is one of
the efforts of the central office's DRSF, which was created in
early 2005. CMS established DRSF to consolidate responsibility for
all state Medicaid payment policy and funding issues. A role of
DRSF is to ensure that state plan amendments for reimbursement of
noninstitutional and institutional services are consistently
reviewed and that CMS policy is consistently applied across the
nation.6 The activities of DRSF have improved CMS's ability to
effectively deploy its resources to carry out more targeted
oversight activities. DRSF's National Institutional Reimbursement
Team and the Non-Institutional Payment Team7 are part of CMS's
effort to collect information on states' funding methodologies
before approving state plan amendments, including high-risk
payment methodologies that have been troublesome in the past.
DRSF reviews all institutional reimbursement state plan amendments
before they are approved by the Director of CMSO, thus eliminating
the decentralized approval process that had been in place at all
10 regional offices.8 This has helped to clarify the lines of
authority and responsibility for the state plan amendment
process-states still submit amendments to their respective region
for review but they are approved by CMS's central office. DRSF
also helped clarify responsibilities between central and regional
office staff by using the 10 central office funding specialists as
liaisons to each of the 10 regional offices. The DRSF funding
specialists help to ensure that regional funding specialists are
informed and kept up to date on funding policies and matters. The
funding specialists also help in conducting a series of monthly
calls that DRSF has instituted between the regions and central
office financial management staff to improve communication and
coordination. These calls help to ensure that all staff stay
informed and up to date on matters that impact state claiming and
the approval of state plan amendments.
These activities, which we consider significantly underway, help
improve CMS's ability to better target its oversight activities
and specifically address the recommendation in our 2002 report to
increase in-depth oversight of areas of higher risk as identified
from the risk assessment efforts and apply fewer resources to
lower risk areas. See appendix II for a complete listing of our
prior recommendations and our assessment of whether or not each
has been fully addressed by CMS's actions to improve its oversight
activities. These activities also help address our overarching
concerns that CMS's organizational structure created challenges to
effective oversight because of unclear lines of authority and
responsibility between the regions and the central office.
Focused Financial Reviews and OIG Audits Continued to Identify
Problems and Needed Corrective Actions
In 2001, CMS began a risk analysis process to identify Medicaid
issues that put federal dollars at risk and address those issues
by conducting focused financial reviews or referring the issues to
the OIG for its review. Since then, at the beginning of each
fiscal year, central office and regional office financial
management staff work together to identify risks and plan focused
financial reviews of the issues identified. CMS's financial
management staff consider factors such as the amount of dollars
involved, involvement of consultants, and time elapsed since last
audit to identify risk areas. CMS's analyses provide insight into
what some of the continuing problematic Medicaid issues and
potential emerging issues are. Table 2 shows which areas have
consistently been identified as needing in-depth review in fiscal
years 2003 through 2006.
Table 2: Issues Consistently Planneda for Focused Financial
Reviews in Fiscal Years 2003 through 2006
Issues FY 2003 FY 2004 FY 2005 FY 2006
Home- and Community-based Services
Administrative Contracts/Claims
Medicaid Management Information Systems
Disproportionate Share Hospital payments
Family Planning Claims
Medical Transportation
Nurse Aide Training Costs
Personal Care Services
State Children's Health Insurance Program
(SCHIP)
School-based Services/Claims
Skilled Professional Medical Personnel
Targeted Case Management
Undocumented Aliens
Upper Payment Limits
Inter-governmental Transfers
Certified Public Expenditures
Source: GAO analysis of CMS's annual workplans.
a"Consistently planned" means that the type of review was planned
in at least 3 of the 4 years.
Note: In addition to the issues shown, approximately 60 other
issues were to be reviewed during the 4 fiscal years.
The focused financial reviews of the issues identified from the
risk analyses have helped CMS identify billions of dollars in
unallowable costs outside of those detected through the review of
quarterly expenditure reports, as well as deficiencies in states'
financial management practices. In fiscal years 2003 and 2004,
focused financial reviews resulted in CMS questioning or
disallowing about $1.3 billion and about $1 billion, respectively,
of state claims for federal reimbursement, according to CMS. The
value of these reviews lies not just in identifying disallowances
but also in providing feedback on policy issues and programmatic
vulnerabilities, and in elevating the attention of both states and
federal staff.9 CMS conducted about 57 focused financial reviews
each year from fiscal years 2003 through 2005. Starting in fiscal
year 2006, the number of planned focused financial reviews almost
doubled from fiscal year 2005 due to the inclusion of planned
reviews to be done by the funding specialists.
We reviewed 35 of the 113 focused financial reviews performed by
regional office financial analysts in fiscal years 2003 and 2004
to assess (1) the consistency with which the reviews were
performed and reported on and (2) the extent to which states took
actions to address the issues identified by CMS. We concluded that
the 35 review reports were generally consistent across the
regions. CMS also provided information to support that states are
taking the recommended actions to address the issues identified.
CMS issued reports to the states that contained recommendations
requesting the states to (1) return federal reimbursement that CMS
determined was not allowable (disallowances), (2) provide
additional documents for CMS to determine the allowability of
questionable claims (deferrals), or (3) improve certain state
controls or processes.
CMS gets additional coverage of risk areas from the reviews
conducted by HHS's OIG. During fiscal years 2003 through 2005, CMS
contracted with OIG using funds from the HCFAC account to conduct
20 or more audits each year of issues identified from the risk
assessment process. We reviewed interagency agreements between CMS
and OIG for fiscal years 2003 through 2005 that provided over $3
million of HCFAC funds each year for OIG to do 20 or more audits
each year relating to Medicaid issues. The interagency agreements
supplemented OIG's overall efforts to monitor Medicaid. Table 3
shows the issues that OIG agreed to audit in selected states
pursuant to the interagency agreements for fiscal years 2003
through 2005.
Table 3: Issues To Be Audited by the OIG in Fiscal Years 2003
through 2005
OIG audit issue FY 2003 FY 2004 FY 2005
Upper Payment Limit Calculation
School-Based Administrative Costs
School-Based Services
Home- and Community-based Services
Medicaid Administrative Costs
Adult Rehabilitation Services
Waivers for Demonstration Projects
Personal Care Services
Home Health Services
Medicaid/SCHIP Duplicate Payments
Targeted Case Management
Medicaid Management Information Systems
Expenditures
Revenue Sharing
Rehabilitation Services for People with Mental
Illness
Institutions for Mental Diseases
Vaccines for Children
Family Planning Services
Skilled Professional Medical Personnel
Provider Overpayments
Provider Tax
Community Mental Health Center Administrative
Costs
Graduate Medical Education
Disproportionate Share Hospital Payments
County Administrative Case Management Services
County Administrative Services
Medicaid Buy-In
Physician Supplemental Payment Program
Enhanced Funding for State Government Hospitals
Personal Needs Allowance for Nursing Home
Residents
Additional Reimbursement for Nursing Facilities of
Public Hospitals
Medicaid Expenditures for Nursing Facilities
Source: CMS.
We reviewed 21 audits done by OIG in fiscal year 2004 pursuant to
the interagency agreement to assess (1) the extent of the
additional coverage given to issues identified by CMS as high risk
and (2) the extent to which states took actions to address the
issues identified by OIG. OIG identified about $13.6 million that
it believed was inappropriate federal reimbursement to the states
in 15 of the 21 audits. States returned about $4.5 million of
disallowed claims identified in 10 of the 15 audits; CMS was still
pursuing the remaining $9.1 million as of the end of our field
work. OIG also made numerous other recommendations to states to
improve their internal controls such as implementing controls to
identify and prevent duplicate payments and complete
reconciliation procedures for overpayments in a timely manner.
Goal for Reducing Questionable Federal Reimbursement Helps Promote
Accountability
CMS has recently developed a specific goal aimed at reducing
questionable federal reimbursement and evaluating its oversight
activities. CMS has established a goal to reduce by 10 percent in
fiscal year 2006 the amount of federal reimbursement that has been
questioned by CMS or OIG. CMS is collecting data on questionable
claims for federal reimbursement identified from sources such as
quarterly expenditure reviews, focused financial reviews, and OIG
audits. According to a CMS official, as part of this process, CMS
has identified a baseline amount of about $8 billion dollars in
cumulative questionable federal reimbursement, which represents
state claims that (1) CMS has determined may not be allowable or
has deferred payment pending review of additional support from the
states, or (2) OIG has questioned as a result of an audit. The
goal for fiscal year 2006 is to resolve at least 10 percent of
this $8 billion by (1) recovering amounts ultimately determined to
be unallowable or (2) determining after further review that the
claims are allowed. CMS officials acknowledge that the goal may
not be attainable each year given the varying facts and
circumstances of the questionable amounts. However, if properly
established and tracked, goals of this nature should help in
improving the effectiveness of CMS oversight activities.
CMS has also included the goal to reduce by 10 percent the amount
of questionable federal reimbursement in the fiscal year 2006
performance agreements of CMS senior financial managers in the
central office. According to CMS officials, it will continue to
hold managers accountable for this type of goal each fiscal year.
CMS has also included specific goals and performance standards in
regional office financial managers' performance agreements. For
example, one regional office has a goal for its managers to ensure
that the financial analysts and funding specialists complete nine
focused financial reviews and five funding source reviews in
fiscal year 2006.
CMS has improved its processes for tracking its financial
management activities and the attainment of the goals it has set.
The Financial Management Activities Report (FMAR) tracks the
amount of regional office resources (staff time, personnel costs,
and travel costs) spent on the various categories of activities in
the financial management workplans. The Financial Issues Report
tracks all questionable state claims for reimbursement identified
by regional financial analysts and funding specialists in focused
financial reviews, quarterly expenditure reviews, and any other
activities that could result in a disallowance or deferral of
state claims, including findings from OIG reports. The Financial
Performance Spreadsheet is the CMS tool used to track the fiscal
year 2006 goal to resolve 10 percent of the amount of cumulative,
questioned claims for federal reimbursement.
These actions, which we consider significantly underway, help
improve CMS's ability to monitor, measure, and evaluate its
financial oversight activities and specifically address the
following recommendations from our 2002 report:
o Include specific Medicaid financial oversight performance
standards in senior managers' performance agreements.
o Collect, analyze, and compare trend information on the results
of oversight control activities, particularly deferral and
disallowance determinations, focused financial reviews, and
technical assistance.
o Use the information collected above to assess overall quality
of financial management oversight.
Other Efforts Help CMS�s Oversight of Medicaid Finances
CMS has initiated two other programs to help carry out its
responsibility at the federal level for helping ensure the
propriety of Medicaid finances and comply with the Improper
Payments Information Act of 200210-the Payment Accuracy
Measurement pilot project, which was initiated in July 2001 and is
now called the Payment Error Rate Measurement (PERM) project, and
the Medicare-Medicaid data match project. Under the PERM program,
states use a CMS-developed methodology to measure state Medicaid
payment errors. By fiscal year 2007, CMS plans to have a national
Medicaid payment error rate based on a sample of states and claims
within those states.11 Under PERM, states will be expected to
ultimately reduce their payment error rates over time by better
targeting their activities to prevent and detect improper payments
made to providers. Under the Medicare-Medicaid data match project,
CMS facilitates the sharing of information between the Medicare
and Medicaid programs by matching Medicare and Medicaid claims
information on providers and beneficiaries to identify improper
billing and utilization patterns which could indicate fraudulent
schemes.
These two projects, which we consider significantly underway, have
helped CMS's efforts to oversee state Medicaid finances and
specifically address the following two recommendations from our
2002 report:
o Complete efforts to develop an approach to payment accuracy
reviews at the state and national levels.
o Incorporate advanced control techniques, such as data mining,
data sharing, and neural networking, where practical to detect
potential improper payments.
Some Previously Identified Weaknesses in Oversight Activities Have
Yet to be Addressed
While CMS has taken a number of actions that improve its oversight
and address several weaknesses we identified in our prior report,
there are previously identified weaknesses that the agency has not
yet addressed. Specifically, CMS has not instituted mechanisms to
measure how the risk of inappropriate federal reimbursement has
changed as a result of corrective actions taken. In addition, CMS
has not incorporated the use of the MSIS database into its
oversight of states claims or other systems projects intended to
improve its analysis capabilities. CMS also has not developed
profiles to document information on state fraud and abuse controls
to use in its oversight of state claims. Finally, CMS has not
developed a strategic plan specific to its Medicaid financial
management activities.
Measuring how risks have changed-In our 2002 report, we
recommended that CMS develop and institute mechanisms to make risk
assessment a continuous process and to measure whether risks have
changed as a result of corrective actions taken to address them.
CMS has processes in place to identify risks, and management has
established procedures to mitigate important risks, such as
detailed reviews of certain high-risk issues. However, CMS's
processes still do not have the elements of risk management that
are key to assessing whether actions to mitigate risks need to be
adjusted either because (1) they are not effective, (2) they are
effective but need to be expanded, or (3) they are no longer
needed because the risks have been resolved or reduced to a
tolerable level.
For example, CMS identified several Medicaid issues as part of its
current risk assessment process that have been the subject of
focused financial reviews across several states, for several
years-issues such as those related to claims for skilled
professional medical personnel, family planning, and school-based
administrative services. As discussed earlier, CMS has issued
reports to the states on these issues that contained
recommendations requesting the states to (1) return federal
reimbursement that CMS determined was not allowable
(disallowances), (2) provide additional documents for CMS to
determine the allowability of questionable claims (deferrals), or
(3) improve certain state controls or processes. However, CMS's
current risk assessment process does not indicate how the
corrective actions taken to address these issues have changed
their assessment of risk or their future strategies for mitigating
the risk that these issues pose.
To CMS's credit, it has recently taken steps to change policies
related to state claims for targeted case management services,12
an issue that has been the subject of multiple focused financial
reviews. While it is not clear from CMS's risk assessment why this
issue was given a higher priority than other issues identified
from its risk assessment, CMS officials explained that their
process for determining what might be a high-risk issue comes from
continuous coordination between financial management staff and
Medicaid program staff that have in-depth program knowledge about
Medicaid policy and procedures. The officials further explained
that the results of their coordination and the fact that an issue
is a high priority may not be noticeable to others until policy
changes are included, for example, in HHS's budget submission or
other legislation that is signed by the President.
Documenting how the outcomes of detailed reviews are used to
determine whether additional or fewer corrective actions are
needed is an important step in risk management. For fiscal year
2006, CMS is planning to conduct additional detailed reviews
intended to ensure that states have stopped certain
intergovernmental transfers and other funding practices that have
resulted in billions of dollars in inappropriate federal
reimbursement.13 It will be important to use the results of these
follow-up reviews as a basis to determine whether its prevention
and mitigation steps are adequate and effective and then to adjust
them accordingly. Fully documenting the results of these types of
activities will help inform planning for future mitigation
efforts.
Because CMS has not fully implemented mechanisms to measure how
risks have changed as a result of actions to address the risks, we
are reiterating our prior recommendation in this area.
Improving analysis capabilities-In our 2002 report, we recommended
that CMS use comprehensive Medicaid payment data that states must
provide to the national MSIS database. Use of these data could
improve CMS's analysis capabilities. MSIS contains Medicaid
program information including data on billions of claims. This
database could be used to identify trends in certain Medicaid
services from prior-year claims that could be useful in analyzing
current-year state claims. According to a CMS official, CMS has
not yet developed the ability to make these data available for use
by the financial analysts and funding specialists in their
oversight activities. Further, only a few CMS staff with the
requisite systems capabilities are currently able to access and
analyze the data. CMS officials said they plan to make these data
more accessible in the future. Because CMS has not yet
incorporated use of MSIS in its oversight activities, we are
reiterating our prior recommendation.
CMS also has not yet completed two other systems projects intended
to help improve its analysis capabilities. CMS started to develop
the: (1) Transactions, Information Inquiry, and Program
Performance System project-an integrated financial management tool
intended to link existing Medicaid data systems and tools; and (2)
Automated Medicaid State Plans Project-a project to explore
collecting electronic submission of state plans that would provide
timely access to critical program information. CMS officials told
us that due to funding constraints, these two projects have yet to
be completed. Determining the systems projects needed to enhance
CMS's analysis capabilities is important given the challenges of
evaluating state Medicaid expenditures and funding practices.
Collecting and using information on state fraud and abuse control
activities-In our 2002 report, we recommended that CMS enhance the
information that it uses in its oversight of state claims by
creating profiles that document each state's activities to oversee
its Medicaid program and prevent fraud and abuse. For example, we
recommended that the profiles include information on provider
screening procedures and payment accuracy studies. CMS currently
collects some information on these and other state program
integrity efforts as part of compliance reviews that are conducted
by program integrity staff in DFM and the 10 regional offices.14
These compliance reviews are to assess whether state Medicaid
program integrity efforts comply with federal requirements such as
those governing provider enrollment, claims review, and
coordination with each state's Medicaid Fraud Control Unit.15
However, CMS officials told us that there is limited coordination
between the staff that conduct the compliance reviews and the
financial management staff that oversee state claims. Further, the
compliance reviews have focused on state compliance and have not
evaluated the effectiveness of the states' fraud and abuse
prevention and detection activities.
CMS is starting to develop strategies as part of the recently
created Medicaid Integrity Program that could address the
weaknesses that we have identified. The Deficit Reduction Act of
2005,16 enacted in February 2006, provided for the creation of a
Medicaid Integrity Program and required CMS to develop a
comprehensive plan for how it would implement the program. CMS
officials have recently begun to develop the plan and have
included proposals for hiring contractors to assess states'
program integrity activities.
Information on states' activities to oversee their Medicaid
programs and prevent fraud and abuse is important to determine the
appropriate level of federal oversight that should be applied to
each state's claims. Because CMS is just starting to develop its
plan and results are not known yet, we are reiterating our prior
recommendations in this area.
Developing a strategic plan to guide Medicaid financial management
activities-In our 2002 report, we reported that CMS was starting
several initiatives, similar to what we are currently reporting,
to bring about improvements in its financial management activities
and oversight. At the time of our 2002 review, CMS did not have a
written strategic plan that described its many oversight
activities and initiatives and the staff responsible for
implementing them. Therefore, we recommended that CMS develop a
written plan and strategy for Medicaid financial oversight.
However, CMS still has not published a comprehensive plan that
describes the many aspects of its Medicaid financial management
strategy and its plans for continuing and sustaining its recent
improvement efforts.
A strategic plan is a key management tool that can help clarify
organizational priorities and unify agency staff in the pursuit of
shared goals. Strategic plans are the starting point and basic
underpinning for a system of program goal-setting and performance
measurement. In accordance with the Government Performance and
Results Act of 1993 (GPRA),17 a multiyear strategic plan
articulates the fundamental mission (or missions) of an
organization, and lays out its long-term general goals for
accomplishing that mission, including the resources needed to
reach these goals. The clearer and more precise these goals are,
the better able the organization will be to maintain a consistent
sense of direction, regardless of leadership changes.
HHS prepares a strategic plan as required by GPRA.18 The HHS
strategic plan contains eight broad program performance goals
related to the missions and programs of its operating divisions.
However only one goal relates to Medicaid financial management-an
overall goal for all HHS programs to "achieve excellence in
management practices." Unlike the Medicare program that started
publishing a separate comprehensive plan for financial management
in fiscal year 2001 that outlined problems and plans to address
weaknesses in the Medicare program's internal controls, oversight,
and financial systems,19 the Medicaid program has not developed
its own plan for financial management that includes an appropriate
level of detail to be useful as a tool to guide its financial
managers.
Medicaid officials told us that they have several planning
documents-such as the annual financial management work plans, the
FMAR, and the Financial Issues Report that we previously
discussed-that they use in managing financial management
activities. While these documents provide information on aspects
of CMS's financial management activities, they do not clearly
define the mission of Medicaid financial management, lay out the
goals for continuously implementing the mission, or provide a
complete description of the operational processes, skills,
technology, and other resources required to meet CMS's financial
management goals and objectives.
Without a strategic plan, CMS lacks an appropriate "roadmap" to
guide activities for ensuring sound financial management of the
Medicaid program. Therefore, we are reiterating our recommendation
in this area.
Use of HCFAC Funds to Enhance Medicaid Oversight Initiatives
During fiscal years 2003 through 2005, CMS received almost $46
million from the HCFAC account that it has used to help fund
programs related to its oversight of Medicaid. Congress enacted
the HCFAC program as part of the Health Insurance Portability and
Accountability Act of 1996 to consolidate and strengthen ongoing
efforts to combat fraud and abuse in health care programs,
including the Medicare and Medicaid programs. The legislation
required the establishment of the national HCFAC program and it
established the HCFAC account within the Medicare Federal Hospital
Insurance Trust Fund, which is funded by appropriations out of the
Trust Fund. The HCFAC program is administered by HHS and the
Department of Justice and is designed to coordinate federal,
state, and local law enforcement activities with respect to health
care fraud and abuse. HHS's OIG, the Federal Bureau of
Investigation, and the Medicare Integrity Program receive direct
appropriations from the HCFAC account, while the Medicaid program
must request funds from the HCFAC account and compete with other
HHS programs, such as the Administration on Aging and the Office
of General Counsel, for allocations from the discretionary part of
the HCFAC account.20 Table 4 shows the discretionary HCFAC funds
available to CMS in fiscal years 2003 through 2005 and the portion
allocated to the Medicaid program run by CMSO for Medicaid
financial management projects.
Table 4: Discretionary HCFAC Funds for CMS and CMSO's Allocation
Dollars in millions
FY 2003 FY 2004 FY 2005 Totals
Total discretionary HCFAC funds for CMS $23.37 $22.75 $31.14 $77.26
CMSO allocation $9.56 $17.08 $18.91 $45.55
Source: CMS and HHS/OIG.
CMSO used this money to help fund projects related to its
oversight of Medicaid. Table 5 shows the various projects for the
3 fiscal years and the amounts allocated to those projects.
Table 5: Medicaid Financial Management Projects and Their HCFAC
Allocations for Fiscal Years 2003 through 2005
Dollars in millions
Projects FY 2003 FY 2004 FY 2005 Totals
Funding specialists (new staff) $1.69 $10.36 $12.05
OIG interagency agreement audits $3.01 5.66 3.80 12.47
Medicare-Medicaid data match project 3.74 3.26 7.0
Payment Accuracy Measurement/PERM/SCHIP 3.70 3.81 1.20 8.71
Error Rate Pilot
Transactions, Information Inquiry, and 2.02 1.68 0.29 3.99
Program Performance System
Other projects 0.83 0.50 1.33
Totals $9.56 $17.08 $18.91 $45.55
Source: CMS.
The HCFAC account provided about $12 million to CMS for the
funding specialists for fiscal years 2004 and 2005. The funding
specialists have been funded on an annual basis with
appropriations from the HCFAC account. There is the chance that
adequate funding might not be provided through the HCFAC process
in any given year for the funding specialists; thus CMS officials
have told us they would like to pursue ways of making the funding
specialist positions permanent. CMS officials told us that there
was a provision in its fiscal year 2007 budget submission, but the
provision was rejected during department-level discussions, so the
funding specialists will continue to be funded on an annual basis
with HCFAC funds. CMS officials also told us that some of the
turnover of funding specialist staff was due to the uncertainty of
funding and whether the positions would become permanent. Creating
permanent funding specialist positions is important, given how CMS
has been using them in performing reviews of high-risk issues.
Other Medicaid projects included in table 5 that CMS used HCFAC
funds for include:
o interagency agreements between CMS and OIG for OIG audits of
high-risk issues such as family planning services in managed care,
skilled professional medical personnel, upper payment limits,
school-based claims, home- and community-based services, and
Medicaid administrative costs reported by state agencies other
than the Medicaid single state agency;
o Medicare-Medicaid data match project developed to identify
improper billing and utilization patterns by matching Medicare and
Medicaid claims information on providers and beneficiaries;
o Payment Accuracy Measurement, PERM, and SCHIP Error Rate Pilot
Projects, which allow states to test a methodology to determine
improper payment error rates in their SCHIP and/or Medicaid
programs;
o Transaction, Information, Inquiry and Program Performance
System to develop and enhance an integrated financial management
tool linking existing CMSO data systems and tools containing
critical financial, statistical, administrative, and other data;
o an organizational study of Medicaid financial processes within
CMS done by OIG under an interagency agreement with OIG;
o a project referred to as the Annuities Project, which used both
qualitative and quantitative research methods to develop a
comprehensive picture of states' experience with the use of
annuities as an asset-sheltering device by Medicaid applicants and
their spouses;
o a Waiver Management System Database project, which updated a
current Waiver Management System Database; and
o a project to research options for automating the Medicaid state
plan process from the creation and submission of state plan
amendments at the state level through approval at the central
office and regional offices.
We obtained documentation to support the use of HCFAC funds for
the above projects.
Conclusions
Since we last reported in 2002, CMS has made improvements to the
processes it uses in its efforts to oversee states and identify
payment errors. Efforts undertaken, such as the hiring of the
funding specialists, consolidating the review of reimbursement
state plan amendments, and the Medicare-Medicaid data match
project have enhanced CMS's ability to identify issues that put
federal Medicaid dollars at risk. While CMS's actions address
previously identified weaknesses and recommendations from our 2002
report related to (1) targeting resources to higher risk areas,
(2) monitoring performance, (3) establishing mechanisms for
ensuring accountability, (4) developing an approach to payment
accuracy reviews and (5) incorporating advanced control
techniques, it is too soon to assess the impact they will have on
improving overall financial management and addressing emerging
issues that put federal Medicaid dollars at risk because the
results of some efforts are not known yet.
In addition, several weaknesses remain in CMS's oversight that
could be addressed by implementing our prior recommendations that
remain open. Specifically, CMS still lacks processes to adjust
oversight activities for changes in risk; therefore, we reiterate
our prior recommendation related to measuring whether risks have
changed as a result of corrective actions to address them. Also,
because CMS has not yet addressed weaknesses we identified in its
analysis capabilities, we reiterate our prior recommendation for
CMS to incorporate using MSIS data in its analysis of state
claims. We also reiterate our prior recommendations to CMS for
collecting and using information on state fraud and abuse control
activities because this information is important to determining
the appropriate level of federal oversight of state claims.
The absence of a strategic plan could hinder CMS in sustaining its
current efforts and addressing the weaknesses that we have
identified. Therefore, we reiterate our prior recommendation that
CMS develop a strategic plan specific to Medicaid financial
management. Also, CMS may not have the staff and systems needed to
continuously identify and target high-risk issues. Therefore, we
stress the importance of creating permanent funding specialist
positions and determining what systems projects are needed to
improve their analysis capabilities.
Recommendations for Executive Action
To further improve and sustain CMS's oversight of state claims,
including its ability to identify and address emerging issues, we
recommend that the Administrator of CMS take the following two
additional actions:
o Create permanent funding specialist positions.
o Determine what systems projects are needed to further enhance
data analysis capabilities.
Agency Comments and Our Evaluation
In written comments on a draft of this report, which are reprinted
in appendix III, CMS agreed with our findings and recommendations
and stated that it will continue examining issues raised in this
report, including prior recommendations from our 2002 report that
are still outstanding. CMS also stated that it will work to
implement the two recommendations made in this report. CMS
expressed its support for our recommendation to create permanent
funding specialist positions, which are currently funded with
HCFAC dollars, and stated it will consider alternative approaches
to provide adequate resources. CMS further stated it will follow
our second recommendation and begin the process of determining the
system projects that are needed to further enhance data
capabilities. CMS also provided additional information on several
of the activities we reported on, including additional activities
of the funding specialists and actions being taken on our prior
recommendations.
As we agreed with your office, unless you publicly announce the
contents of this report earlier, we plan no further distribution
of it until 30 days from the date of this letter. We will then
send copies to the Secretary of Health and Human Services,
Administrator of CMS, Inspector General of HHS, and other
interested parties. Copies will be made available to others upon
request. In addition, this report will be available at no charge
on the GAO Web site at http://www.gao.gov .
If you or your staff have any questions about this report, please
contact me at (202) 512-8341 or [email protected] . Contact points
for our Office of Congressional Relations and Public Affairs may
be found on the last page of this report. Major contributors are
acknowledged in appendix IV.
Linda Calbom Director, Financial Management and Assurance
Appendix I: Scope and Methodology
To identify the extent to which the Centers for Medicare &
Medicaid Services (CMS) has improved its oversight, including its
ability to identify and address emerging issues that put federal
Medicaid dollars at risk, we performed work at CMS headquarters
and two regional offices. We reviewed and assessed aspects of
CMS's financial oversight processes, which include identifying
high-risk areas in order to develop an annual regional office
financial management workplan and conducting focused financial
reviews of high-risk areas. We reviewed 35 of the 113 focused
financial reviews conducted by CMS regional offices for fiscal
years 2003 and 2004. We selected reviews of specific issues that
were reviewed across regions and fiscal years, such as
disproportionate share hospital payments and school-based
administrative services. We did not select certain issues, such as
upper payment limits and intergovernmental transfers, because
these issues have been well-covered in other reports and by CMS's
actions. We looked for consistency of the reviews among regions
and fiscal years and the extent to which states implemented CMS's
recommendations. We obtained and reviewed documentation showing
the activities and work performed by the new funding specialists
hired by CMS during 2004 and 2005 as part of its efforts to
improve its financial management of the Medicaid program. We
reviewed our prior reports and reports by the Department of Health
and Human Service's Office of Inspector General (OIG) and others.
We also reviewed interagency agreements between CMS and OIG. We
interviewed OIG staff, and CMS officials and staff at the CMS
central office in Baltimore, Maryland, and two regional
offices-New York and Chicago. We selected the New York and Chicago
regional offices to visit based on the number of focused financial
reviews we selected to review that were performed by these
regions. Sixteen of the 35 focused financial reviews we selected
to review were performed by these two regions; the remaining 19
focused financial reviews were done by seven other regional
offices. We also considered the Comptroller General's Standards
for Internal Control in the Federal Government.1
To determine how CMS used funds from the Health Care Fraud and
Abuse Control (HCFAC) account for fiscal years 2003 through 2005,
we obtained from CMS a list of Medicaid projects that were funded
from the HCFAC account in fiscal years 2003 through 2005. We
obtained and examined documentation from CMS such as invoices;
grant awards; interagency agreements; and accounting, budget, and
payroll records that support the information provided by CMS on
how it spent HCFAC funds for fiscal years 2003 through 2005. We
also reviewed the HCFAC program and funding legislation, 42 U.S.C.
S:S: 1320a-7c, 1395i(k).
We requested written comments on a draft of this report from the
Administrator of CMS or his designee. His written comments are
reprinted in appendix III. We conducted our review from February
2005 to May 2006 in accordance with generally accepted government
auditing standards.
Appendix II: Status of Prior Recommendations Appendix II: Status of Prior
Recommendations
Table 6: Recommendations Made in GAO-02-300 - Medicaid Financial
Management: Better Oversight of State Claims for Federal Reimbursement
Needed (February 2002)
Recommendation Status and action(s) taken
Risk assessment Recommendations 1 and 2: Open/reiterate
The Centers for Medicare & CMS currently collects some information on
Medicaid Services (CMS) state program integrity efforts as part of
administrator should revise compliance reviews that are conducted to
current risk assessment efforts assess whether state Medicaid program
in order to more effectively integrity efforts comply with federal
and efficiently target requirements. Also, CMS is starting to
oversight resources towards develop strategies as part of the recently
areas most vulnerable to created Medicaid Integrity Program that
improper payments by taking the include proposals for hiring contractors
following actions. to assess states' program integrity
activities. Because CMS is just starting
1. Collecting, summarizing, these efforts and results are not known
and incorporating profiles yet, we are reiterating our prior
of state financial oversight recommendations in this area.
activities that include
information on state Recommendation 3: Open/reiterate
prepayment edits, provider
screening procedures, CMS's processes still lack elements of
postpayment detection risk management that are key to assessing
efforts, and payment whether actions to mitigate risks need to
accuracy studies. be adjusted either because (1) they are
2. Incorporating information not effective, (2) they are effective but
from reviews of state need to be expanded, or (3) they are no
initiatives to prevent longer needed because the risks have been
Medicaid fraud and abuse. resolved or reduced to a tolerable level.
3. Developing and Therefore, we are reiterating our prior
instituting feedback recommendation.
mechanisms to make risk
assessment a continuous Recommendation 4: Closed implemented
process and to measure
whether risks have changed In July 2001, CMS initiated the Payment
as a result of corrective Accuracy Measurement pilot project, now
actions taken to address called the Payment Error Rate Measurement
them. (PERM) project. Under the PERM program,
4. Completing efforts to states use a CMS-developed methodology to
develop an approach to measure state Medicaid payment errors. By
payment accuracy reviews at fiscal year 2007, CMS plans to have a
the state and national national Medicaid payment error rate based
levels. on a sample of states and claims within
those states. These actions, which we
consider significantly underway, help
improve CMS's ability to ensure payment
accuracy and address our recommendation.
Financial oversight control Recommendation 5: Closed implemented
activities
The new funding specialists are helping
The CMS administrator should CMS to collect and summarize more
restructure oversight control information on states' Medicaid programs
activities by taking the to help CMS target its oversight efforts
following actions. to high-risk issues such as certain
payment arrangements that have been
5. Increasing in-depth problematic in the past. A major activity
oversight of areas of higher of the funding specialists during their
risk as identified from the first year was the completion of state
risk assessment efforts and funding profiles to help CMS in its review
applying fewer resources to and oversight of the states' financial
lower risk areas. issues. For example, the profiles include
6. Incorporating advanced a "watch list" section where the funding
control techniques, such as specialists can highlight significant
data mining, data sharing, funding-related concerns that may need to
and neural networking, where be addressed in the future. These actions,
practical to detect which we consider significantly underway,
potential improper payments. address our prior recommendation.
7. Using comprehensive
Medicaid payment data that Recommendation 6: Closed implemented
states must provide in the
legislatively mandated CMS developed and implemented the
national Medicaid Medicare-Medicaid data match project.
Statistical Information Under this data match project, CMS
System (MSIS) database. facilitates the sharing of information
between the Medicare and Medicaid programs
by matching Medicare and Medicaid claims
information on providers and beneficiaries
to identify improper billing and
utilization patterns which could indicate
fraudulent schemes. These actions, which
we consider significantly underway,
address our prior recommendation.
Recommendation 7: Open/reiterate
CMS has not yet developed the ability to
make these data available for use by the
financial analysts and funding specialists
in their oversight activities. The MSIS
database is very voluminous as it contains
data on billions of claims. CMS officials
said they plan to make these data more
accessible in the future. Because CMS has
not yet incorporated use of MSIS in its
oversight activities, we are reiterating
our prior recommendation.
Monitoring performance Recommendations 8 and 9: Closed
implemented
The CMS administrator should
develop mechanisms to routinely CMS has improved its processes for
monitor, measure, and evaluate tracking the results of financial
the quality and effectiveness management activities. CMS uses several
of financial oversight, tracking reports-the Financial Management
including audit resolution, by Activities Report (FMAR), the Financial
taking the following actions. Issues Report, and the Financial
Performance Spreadsheet. The FMAR tracks
8. Collecting, analyzing, the amount of regional office resources
and comparing trend (staff time, personnel costs, and travel
information on the results costs) spent on the various categories of
of oversight control activities in the financial management
activities, particularly workplans. The Financial Issues Report
deferral and disallowance tracks all questionable state claims
determinations, focused identified by regional financial analysts
financial reviews, and and funding specialists in financial
technical assistance. management reviews and any other
9. Using the information activities that resulted in a disallowance
collected above to assess or deferral of state claims, including
overall quality of financial findings from Office of Inspector General
management oversight. (OIG) reports. The Financial Performance
10. Identifying standard Spreadsheet is the CMS tool used to track
reporting formats that can the fiscal year 2006 goal to resolve 10
be used consistently across percent of the amount of cumulative,
regions for tracking open questioned claims for federal
audit findings and reporting reimbursement. These actions, which we
on the status of corrective consider significantly underway, help
actions. improve CMS's ability to monitor, measure,
11. Revising Division of and evaluate its financial oversight
Audit Liaison audit tracking activities and address our prior
reports to ensure that all recommendations.
audits with Medicaid-related
findings are identified and Recommendations 10 and 11: Open
promptly reported to the
regions for timely CMS did not agree with these prior
resolution. recommendations on audit tracking. During
the course of our current audit, we
coordinated with CMS regional office staff
on open audit findings and the status of
corrective actions for fiscal year 2004
OIG audits completed under the interagency
agreement. The staff provided us with a
current status on open audit findings that
we inquired about. We did not obtain
updated information from the Division of
Audit Liaison in CMS's central office as
to whether they have changed their audit
tracking processes.
Organizational structure Recommendation 12: Closed implemented
The CMS administrator should CMS staff provided us with fiscal year
establish mechanisms to help 2006 performance agreements of CMS senior
ensure accountability and financial managers in the central office,
clarify authority and internal and they include goals for improving
control responsibility between financial management. They specifically
regional office and state that managers are responsible for
headquarters financial managers achieving the goal of reducing by 10
by taking the following percent the amount of cumulative,
actions. questioned federal reimbursement.
According to CMS, it will continue to hold
12. Including specific managers accountable for the goal of
Medicaid financial oversight reducing questionable reimbursement each
performance standards in fiscal year. CMS has also included
senior managers' performance specific goals and performance standards
agreements. in regional financial managers'
13. Developing a written performance plans, such as assuring
plan and strategy which completion of a specified number of
clearly defines and focused financial reviews and funding
communicates the goals of source reviews. These actions, which we
Medicaid financial oversight consider significantly underway, address
and responsibilities for our prior recommendation.
implementing and sustaining
improvements. Recommendation 13: Open/reiterate
Medicaid officials said that they have
several documents that articulate their
plans and strategy. However, CMS still
lacks a published, comprehensive plan that
describes the many aspects of its Medicaid
financial management strategy and its
plans for continuing and sustaining its
recent improvement efforts. Therefore, we
reiterate our prior recommendation.
Source: GAO.
Appendix III: Comments from the Centers for Medicare & Medicaid Services
Appendix IV: GAO Contact and Staff Acknowledgments
GAO Contact
Linda Calbom, (202) 512-8341 or [email protected]
Acknowledgments
Staff members who made key contributions to this report include Kimberly
Brooks (Assistant Director), Theresa Bowman, Lisa Crye, Abe Dymond, Diane
Morris, Michelle Smith, and Edward Tanaka.
Related GAO Products
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Washington, D.C.: March 28, 2006.
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1 GAO, Standards for Internal Control in the Federal Government,
GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).
6We have other ongoing work related to CMS's review process of proposed
state plan amendments and plan to report our results later this year.
7Institutional reimbursement state plan amendments describe how states
will reimburse institutions, mainly hospitals and nursing homes, for
services they provided to Medicaid-eligible individuals. Noninstitutional
reimbursement state plan amendments cover payments to providers of
services, mainly physicians.
8 Noninstitutional reimbursement amendments are still approved by regional
offices. According to CMS officials, the number of noninstitutional
reimbursement amendments is quite voluminous compared to
institutional-related amendments, but the institutional amendments involve
much larger reimbursement amounts.
9Kaiser Commission on Medicaid and the Uninsured, Medicaid's Federal-State
Partnership: Alternatives for Improving Financial Integrity (February
2004), p. 20.
10Pub. L. No. 107-300, 116 Stat. 2350 (Nov. 26, 2002).
11For additional information on the PERM project, see GAO, Improper
Payments: Federal and State Coordination Needed to Report National
Improper Payment Estimates on Federal Programs, GAO-06-347 (Washington,
D.C.: Apr. 14, 2006).
12Targeted case management services are services which assist an
individual in gaining access to needed medical, social, education, and
other services. Proposed changes are estimated to save $2.1 billion over
10 years.
13CMS has been working with states to terminate certain funding and
payment practices. We have other ongoing worked related to CMS's oversight
of these payment arrangements and plan to report our results later this
year.
14According to a CMS official, its Medicaid staff resources allocated to
supporting or overseeing states' antifraud and abuse operations was an
estimated 6.1 FTEs-2.6 FTEs at headquarters and 3.5 FTEs in the regional
offices.
15As we have reported in the past, CMS has only conducted about eight
state compliance reviews a year due to staffing and funding constraints.
16 Pub. L. No. 109-171, S: 6034, 120 Stat. 3, 74-78 (2006).
17 Pub. L. No. 103-62, 107 Stat. 285 (Aug. 3, 1993). See 5 U.S.C. S:306.
18 5 U.S.C. S: 306.
19 Kaiser, p. 11.
20Discretionary funds are appropriated from the Trust Fund to the HCFAC
account to cover HCFAC program costs in amounts the Secretary of HHS and
the Attorney General certify as necessary. 42 U.S.C. S: 1395i(k)(3)(A)(i).
(190136)
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Highlights of GAO-06-705 , a report to the Chairman, Committee on Finance,
U.S. Senate
June 2006
MEDICAID FINANCIAL MANAGEMENT
Steps Taken to Improve Federal Oversight but Other Actions Needed to
Sustain Efforts
Medicaid-the federal-state health care financing program-covered over 56
million people at a cost of $295 billion in fiscal year 2004, the latest
fiscal year for which complete data are available. The Centers for
Medicare & Medicaid Services (CMS) is the federal agency responsible for
overseeing states' Medicaid programs and ensuring the propriety of
expenditures reported by states for federal reimbursement. In 2002, GAO
reported on weaknesses in CMS's oversight of Medicaid financial management
and made recommendations to CMS to strengthen its oversight process. In
fiscal year 2003, CMS started receiving funds from the Health Care Fraud
and Abuse Control (HCFAC) program to help improve Medicaid financial
management. GAO was asked to evaluate CMS's financial management
activities, including following up on prior recommendations. In this
report, GAO examined (1) the extent to which CMS has improved its ability
to identify and address emerging issues that put federal Medicaid dollars
at risk and (2) how CMS used funds for Medicaid from the HCFAC account.
What GAO Recommends
GAO is making two recommendations to the CMS Administrator to create
permanent funding specialist positions and determine what systems projects
are needed to further enhance data analysis capabilities. CMS agreed with
our findings and recommendations.
CMS has undertaken several steps to improve its Medicaid financial
management activities, including its efforts to oversee state claims for
federal reimbursement and to identify payment errors. CMS hired about 90
funding specialists, thus enhancing its ability to address high-risk state
funding practices that inappropriately increase federal costs. CMS also
created a new unit that centralized responsibility for approving state
plan amendments related to reimbursement. CMS continued to identify
billions of dollars in questionable federal reimbursement through focused
financial reviews. CMS also set goals aimed at reducing questionable
federal reimbursement and holding financial managers accountable and
enhanced its internal processes for tracking results of its financial
management activities. These and other efforts, such as CMS's approach for
measuring payment errors under the Improper Payments Information Act,
represent improvements in the processes that CMS uses in its oversight of
states. While these actions also address previously identified weaknesses
and recommendations from our 2002 report, it is too soon to assess the
impact they will have on improving overall financial management and
addressing emerging issues that put federal Medicaid dollars at risk
because some have just recently been initiated and results are not known
yet. Further, there are a number of previously identified weaknesses that
the agency has not yet addressed. Specifically, CMS has not instituted
mechanisms to measure how the risk of inappropriate federal reimbursement
has changed as a result of corrective actions taken. In addition, CMS has
not incorporated the use of the Medicaid Statistical Information System
database into its oversight of states' claims or other systems projects
intended to improve its analysis capabilities. Further, CMS has not
developed profiles to document information on state fraud and abuse
controls to use in its oversight of state claims. Finally, CMS has not
developed a strategic plan specific to its Medicaid financial management
activities. Because these issues are important to further improving and
sustaining CMS's oversight activities, we reiterate and build on our prior
recommendations in these areas.
During fiscal years 2003 through 2005, CMS received almost $46 million
from the HCFAC account that it used to help fund programs related to its
oversight of the Medicaid program, including about $12 million for the
funding specialists for fiscal years 2004 and 2005. The funding specialist
positions have been funded on an annual basis with appropriations from the
HCFAC account. There is the chance that adequate funding might not be
provided through the HCFAC process in any given year for the funding
specialists; therefore, creating permanent funding specialist positions is
important. CMS used the other $34 million for other projects such as
researching options for automating the Medicaid state plan process, and
interagency agreements with the OIG to conduct audits of high-risk areas.
GAO obtained documentation to support the use of HCFAC funds for these
projects.
*** End of document. ***